TD Bank's Ed Clark advises against asset sales of LCBO, OPG
More revenue possible by holding on to alcohol sales, top banker says
Ed Clark, the head of one of Canada's biggest banks, has warned the Ontario government against selling off assets like the province's liquor board, saying the province can better meet its debt reduction targets in other ways.
The outgoing chief executive of Toronto-Dominion Bank is chairing a panel that has been asked by Premier Kathleen Wynne to advise how the province can "maximize the potential of these government enterprises," the government said in a release this summer.
There have been calls for the government to sell off monopolies like the LCBO and Ontario Power Generation to raise billions of dollars to tackle the province's $12-billion deficit.
But the plan outlined at a luncheon speech by Clark on Friday rejects those ideas, saying more revenue can be extracted from those agencies in other ways.
The report does, however, recommend that the province's electrical utility, Hydro One, should sell its distribution business and focus on electricity generation.
Changes needed at LCBO
By incorporating the recommendations, Clark said, the province could raise as much as $2 billion to $3 billion to pay for services and pay down debt.
"Such an initiative would realize funds which the province could invest in transit and transportation infrastructure."
Ontarians often malign the liquor board for its monolithic status and what's perceived as less than exemplary customer service and prices.
But Clark disagrees. "I'll say upfront, the current system does a pretty good job in keeping prices low for Ontarians," he said. "Our research would suggest we pay less for alcohol than the national average."
The LCBO should build its business around what the consumer wants, instead of what it wants.- TD Bank CEO Ed Clark
As for selling off the LCBO entirely, Clark doubts it would make the system better. "We couldn't see how the consumer would be better off, and it is possible that the consumer would be worse off."
That's not to say he thinks the liquor board can't do with some improvement. Despite being the world's largest purchaser of alcohol, the board doesn't use its heft to negotiate a better price from suppliers the way retailers like Costco or Wal-Mart would.
"Indeed, the LCBO is incented not to negotiate volume discounts because it actually collects more money if the supplier charges more for a bottle of wine," Clark said.
That has to stop, he said, and is an easy way to improve the board's bottom line, and the windfall for taxpayers in the process.
Clark also recommends that the LCBO be allowed to sell beer in 12-packs — something that is currently only allowed at the Beer Store, which has a monopoly on the sale of beer in those increments and is owned by foreign brewing conglomerates.
"The LCBO should build its business around what the consumer wants, instead of what it wants," Clark said.
Updates to electrical system
One area where the panel thought privatization would help, however, is with the electrical utility. The panel urged that Hydro One focus on electricity transmission and get out of the local distribution business, which the panel estimates would bring in up to $3 billion in private investment.
Private-sector capital should be used to change an "unnecessarily cluttered and fragmented" system of more than 70 local electricity distributors to consolidate the sector and make it more efficient, said Clark.
"In the case of Hydro One, there is an opportunity to address a long-term problem in the electrical distribution system — the excessive number of small players," he said.
Hydro One mainly handles the distribution side. On the generation side of the power grid, the provincial utility known as Ontario Power Generation or OPG should be split into two entities, with one to focus on the refurbishment of the Darlington nuclear generating station while the other looks after the more "straight forward" hydro-generated electricity business, the panel said.
"There are a number of things that OPG management can do to save money and improve performance. They agree in principle with our initial findings," Clark said. "Any savings will ultimately accrue to the ratepayers. This is a good thing."
- A earlier version of this story reported incorrectly that one of the businesses the Clark panel was looking into was the province's lottery business, OLG. In fact, the board was looking into the sale of the power distribution business, OPG, among other agencies, including the LCBO.Oct 17, 2014 1:29 PM ET
With files from The Canadian Press